Retroactive Drug Monopoly Raises Rates From $10... To $1,500

from the the-high-price-of-monopolies dept

A bunch of you have been sending in the somewhat horrifying story of how KV Pharmaceutical has been retroactively granted a monopoly on the drug Makena, which is use to prevent premature births. The product has been on the market for years, and normally costs about $10 per dose... but thanks to the new monopoly, the price is immediately jumping up to an astounding $1,500 per dose -- and this is something that many pregnant women need around 20 doses of during their pregnancy. That increases the overall price from about $200 to $30,000. For something that's been on the market for years. I'm reminded of Thomas Macaulay's famous statement:

"the effect of monopoly generally is to make articles scarce, to make them dear, and to make them bad."

Tragically, many obstetricians and the March of Dimes had vociferously supported this move, without understanding the basic economics of monopoly pricing. They thought that granting a monopoly to one company would mean that it would make the drug "more available." Joke's on them, and now they're upset:

"That's a huge increase for something that can't be costing them that much to make. For crying out loud, this is about making money," said Dr. Roger Snow, deputy medical director for Massachusetts' Medicaid program.

"I've never seen anything as outrageous as this," said Dr. Arnold Cohen, an obstetrician at Albert Einstein Medical Center in Philadelphia.

"I'm breathless," said Dr. Joanne Armstrong, the head of women's health for Aetna, the Hartford-based national health insurer.

Doctors say the price hike may deter low-income women from getting the drug, leading to more premature births. And it will certainly be a huge financial burden for health insurance companies and government programs that have been paying for it.

It's really amazing that people don't understand the basics of monopoly pricing and how drastically it has distorted the market for drugs. Hopefully this story of Makena will get some people to wake up as to why this is a massive problem.

Reader Comments

They did something like this with Pyridoxamine, a form of vitamin B. The vitamin was around a while, but because a pharmaceutical company later did research on it, they got a patent on it and then they petitioned the FDA to regulate it as a drug so that others can't sell it. The FDA then only approved their patented variant.

Quite frankly, I was unaware of the Orphan Drug Act until I did a bit of research after reading this article. Reading the provisions of the Act was very illuminating.

While one can certainly make a case that the incentive of exclusivity may provide the impetus for the bringing of such drugs to market, it does seem a bit unusual that the exclusivity is separate, distinct and unrelated to patent law. The latter has stringent requirements associated with a patent grant, but then the drug does have to go through extensive clinical trials before it is approved for market.

In contrast, the Orphan Drug Act appears to neatly sidestep the patent system altogether, and in so doing results in the grant of far greater rights than anything associated with the patent law. While the term of exclusivity under the Act is possibly shorter that the term conferred by a patent, it is not subject to the numerous defenses available for attempting to strike down an issued patent.

I have to think about this one since it is not at all clear to me with the little information I have in hand the constitutional basis under which the federal government has the right to grant exclusivity independent of the Patent and Copyright Clause, Article 1, Section 8, Clause 8.

The Act almost appears to make patents on drugs to be benign in comparison.

Of course, it may be worthwhile to note that the exclusivity associated with an orphan drug may not truly represent a monopoly in the sense that there may be other drugs on the market with substantially similar therapeutic efficacy. If this be the case, ordinary market forces may very well keep prices in check. If this is not the case, well...that would be an entirely different matter altogether.

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If this be the case, ordinary market forces may very well keep prices in check.

The price jumped from $10 to $1500 once the company was given an exclusive right to sell it - how is that "in check"? The only thing the market can do about it is not buy at such an extortionate price...

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Comment was a generic observation. An orphan drug that has to compete with a host of other equally efficacious drugs is subject to price competition. An orphan drug that is not subject to such competition will, of course, be able to be priced according to what the market will bear. Not at all sure if the latter will result in absurd prices, but in this case it does seem that the company may be taking product pricing to new levels that will almost surely come back to bit it in its rear.

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It seems like an incredibly boneheaded move on the part of the manufacturer. If they marked it up to $150 for a dose they might just might have gotten away with it but an increase of 1500 percent is just insane.

If a compounding pharmacy could make it profitably for $10 a shot on a small scale, a large manufacturer should be able to make it for next to nothing and reap a huge profit at $10 just on the difference in scale.

Some background

This is why the March of Dimes supports it: The March of Dimes, which gets hundreds of thousands of dollars in funding from Ther-Rx, celebrated the approval in a press release.

This is a 50 year old drug that's been made for years and now companies who have been making this drug for many years now have no right to make a drug that they created? How is this helping anyone or furthering anything?

Two statements strike me as odd:

The March of Dimes and many obstetricians supported that because it means quality will be more consistent and it will be easier to get.

But:
Doctors say the price hike may deter low-income women from getting the drug, leading to more premature births.

So essentially you're saying rich people are the only ones who are really going to benefit from this and of course the March of Dimes, who apparently only care about filling their coffers, not actually helping people. Also this drug is used for more blacks than any other race, so it's also a race issue... If you're a middle class black family I really pray you don't have a premie, now more than ever.

This is just flat out robbery and price fixing and I can't believe that it's legal, but when Michigan can create a law that takes voter's right to representative democracy away, I don't really know if this country is worth living in anymore.

Big Pharma

Re: Big Pharma

Granting patents and other monopolies are government price controls, so actually they're already doing it, they just suck at it, like pretty much every government has when they think it's a good idea to stick their hands too deeply in anything.

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Yeah, since when has Obama cared about the public interest? He's clearly a copy'right' maximist, who's to say he is critical of patents. Yeah, he may have mentioned patents earlier, but that was just lip service.

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Yes, they want to protect America's IP from people who copy it illegitimately.
The fact is that they are not copyright maximalists, and they have told the companies in question in private (according to statements from anonymous leakers) that they have to start dealing with the real world and improve their services to deal with the fact that there is no artificial scarcity anymore with music, movies, etc.

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Then why isn't he lifting a finger to reduce the outrageous copy'right' lengths? Instead, he's only seeking to make the laws worse with things like ACTA and secret meetings with industry reps. and he promised transparency. he's the president, its his job to at least try and fix the laws instead of making them worse. Not to mention the vice president hw appointed who is just as bad.

and Clinton is no better, instead of lifting a finger to fix copy'right', he passed the DMCA to make it worse.

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In my country, pharma price controls were implemented a few years ago...from manufacturer all the way down to retail.

Small pharmacies and pharmacies in smaller and / or poorer areas closed down. The corporate chains stepped in. Good luck to anyone who has an emergency after hours, or who would prefer to be serviced by a qualified pharmacist (as opposed to an assistant), or who needs an expensive drug (with loss-making margins...will not be stocked).

In a similar move my government thought that it would be a good idea to increase the regulation of medical insurers particularly the manner in which they priced risk...premiums increased and benefits / cover went down.

In the face of price control industry either cuts costs to maintain profits or redeploys capital to other industries / countries.

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Price controls are necessary in some facets of the economy, where there is no true supply and demand or a supply that is able to be manipulated.

I seriously doubt that the pharmacies closed down because of these price controls. In fact, I'll be blunt: sounds like a load of crap to me.

I'm thinking that they closed down because they simply could not compete with the big guys anymore, and I should bring out something: most mom & pop pharmacies only stayed open bankers hours or close to it when I was young.

More info about the affects of pharma price controls in SA

Per a 2006 article...
"Since last November, 103 small pharmacies countrywide have shuttered, most citing the price controls, according to a survey by the Pharmaceutical Society of South Africa. "Since then a lot more have gone," said society spokesperson Clive Stanton. "Patients are getting a cheaper service, but the problem is that in some areas they will get no service at all."" [ http://www.thebody.com/content/news/art23818.html ]

Not only have pharmacies in smaller and poorer areas closed down, but bright youngsters are (obviously) opting pick other professions entirely...

"Changes in legislation, around pharmacist remuneration for example, has however led to much lower numbers of students applying for access into pharmacy programmes at most schools, a much higher percentage of applications were thus accepted and students barely making the cut-off criteria were accepted." [ http://www.sapj.co.za/index.php/SAPJ/article/viewFile/600/546 ]

Most concerning for me is resource allocation. It's well known that drug companies invest their resources in developing drugs that are likely to give the best return on investment. Baldness is likely to get more resources than malaria. Why? Rich bald guys don't bleat on about price controls and patents.

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Which is why we need to stop having a heart attack everytime someone bring up the words "nationalization" and "socialism". Yes, those two things CAN be taken too far.... but it's hard to in all honesty.

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Why should we reduce the educational requirement, when the bad things from having an uneducated doctor in a practice or hospital is so damned bad?

2 is also a load of bullcrap, because doctors do make illegitimate mistakes all the time, like the doctor who nearly killed my cousins baby by letting it go up and down the birth canal 10-15 times, until the baby got distressed.

3 is also a load of crap. Hospitals should be required to meet the highest standards possible, because the ills from them cutting corners are so bad.

4 is also crap, most people do accept mortality, however they don't feel that they should be dying at the age of 30 from something that is treatable.

To be blunt, you are spouting conservative talking points, and I easily saw through it. Now go away, and let the big boys with brains talk.

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But you hit some of the pricing issues with health care in the US.

The supply of "doctors" is too low, maybe for a number of reasons. The USA doesn't really have that many medical schools. Don't suppose for a minute that I'm down on medical doctors. I'm not: they are simply amazing these days. A general practice doctor is probably the educational and medical equivalent of a high-powered specialist in 1980. But we do have strict licensing requirements, and that probably does keep the supply artificially low.

Malpractice suits are probably too common. This drives physicians to perform "unnecessary" tests, just to cover all bases all the time. We don't allow for mortality and judgment. Perhaps "loser pays" (English Rule) would be a solution, perhaps caps on settlements. I don't know.

Because suits are so common, malpractice insurance is too high in cost. I don't know if I've heard a solution to this one, except "cap settlements", which could easily have some really bad side effects.

Pharmaceuticals, indeed, all medical-related materials, are held to extremely strict standards in materials and manufacturing than anything else, except maybe aerospace flight hardware and software. It's cool that everything in a hospital is carefully over-engineered and tracked, but it costs.

I don't know what the solution(s) is, but it's got to be a combination of things.

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Actually, I disagree with you on point 4. If something is "treatable" with hundreds of thousands (or lord forbid, millions) of dollars of tests and medications, is that really treatable? I submit that realistically, it is not. And yes, I'll put my money where my mouth is: to me, that applies to myself and all of my family.

Even worse is when all of that money only buys a person a few more months of life, often enough in constant pain. When did we get so foolish and selfish that we think that this is a good idea?

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There are probably many people who generally support "Libertarian principles" (or claim they do) yet support government monopoly IP grants.

Of course, we all rely on government quite a bit, so it's not surprising that we don't consider all the potential consequences in all cases of supporting or not some social, economic, or government policy or other.

In a similar vein of claiming to follow imprecise principles in a complex world, not surprisingly, we also have many people that call themselves Christians yet have a very hard believing that turning the other cheek and generally rejecting money is good.

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Actually, as a bona-fide libertarian, I can tell you that you are wrong. Some libertarians may believe in IPR in general, but the retroactive granting of a monopoly would be about as far from libertarian principles as you could get.

Re: What I love about this

Re: What I love about this

Actually, your answer of regulation in this case is absurd. What we are seeing is the government's regulatory process in action. The FDA handed over a monopoly to a private corporation which turned out to be an enormously damaging activity. What sort of evidence do you have that in your preferred future, when the FDA has more power it will use them any more wisely than it did in this case? The same can be said about any regulatory agency. Again and again, the regulatory process is controlled by large corporations that are the targets of those regulations. And your response is: "Let's do it again! I have a good feeling this time it's going to work!"

Re: What I love about this

Libertarians? You should look up that word. I do not think it means what you think it means. Libertarians do not want the government to stop anyone from making that drug, or any other. If you can make it and sell it at a profit for a dollar, have at it.

retroactive? ... Does this mean that people who were previously administered the drug and only paid $10 per shot will be receiving a bill for $1490 x number of doses ? How many years back does this go?

The price tag for a premature infant in the NICU runs about oh ruffly about 200k per month, excluding mother's stay in the hospital. If we didn't have medicaid at the time I dare say my 5 year-old-son.. well ya get the point.

In cost comparison 30k is a far cry from the million we would have had to fork out. And yet...seeing it from a perspective of somebody that had a 3 month premature kid I can tell you if my wife's OB caught the signs we surely used the alternative; medicaid or not.

Now getting to the gem of the matter. If I had not just lost my job and been on medicaid the medical community would have bankrupted us. Little perspective for your afternoon KV Pharm.

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My daughter was born in 1981 and was just over 3 weeks premature. NICU costs in 1981 dollars was just over $250K for four and one half months. I thank the Good Lord that just 7 days before she arrived prematurely we started a new insurance plan that picked up all of the costs.

In our case this drug would have had no beneficial effect since what led to our daughter's premature birth was not something that could have been treated with any drugs.

Had it been a situation where a drug would have delayed her birth, even by only a month, you can be sure that I would have left no stone unturned to find the money needed. Would I have been upset to learn about earlier pricing? Absolutely. Would my anger have influenced my "stone turning"? Not a chance.

Re: Alternatives?

Funny how just no notice given about how well planned this is...

The idea that the people (really) behind this had no idea of the consequences...

Is total balderdash!!

This is just another part of the Obvious (but overlooked by all the deadstream media an their puppet masters) step by step tour people foolishly and stupidly (deliberate ignorance IS stupidity) of electing a Marixst regime to destroy the country...

The whole history of those in power now, is available...

Was available before the elections...

But, the deadstream didn't (and still doesn't) want you to know.

The bill they "wrote so quickly," had been on the shelves waiting for the right moment, for years. ALL had been carefully re-edited in the April BEFORE they passed it, and now they have in place, billions for their campaign coffers... at your expense.

But, You never stopped to think, the money is not for you, or for the country...

It is to line the pockets of those hoping for what change you may have left... and that is all they meant by that stupid line

Re: Funny how just no notice given about how well planned this is...

Oh, shut up. The fact is that if the Republicans had been in power, they would have granted this even fucking quicker than the FDA did here.

Secondly, we do NOT have Marxists in the White House today. We have people who realize that the best system is a B A L A N C E between capitalism and socialism, this one instance of stupidity notwithstanding.

Wow, these KV guys sound like real humanitarians

"The former chairman and CEO of St. Louis-based KV Pharmaceutical Co. was fined $1 million after pleading guilty Thursday to misdemeanor counts related to manufacturing oversized tablets of a pain-relief drug called morphine sulfate.

Marc S. Hermelin, 69, also was sentenced to a month in prison after pleading guilty to two federal counts of misbranding drugs. He also agreed to forfeit $900,000 to the federal government."

...

"A wholly-owned subsidiary of KV, Ethex Corp., pleaded guilty in March 2010 to two felony fraud counts as part of the same investigation. Ethex was ordered to pay $27.6 million in fines and restitution."

This looks like an EXCELLENT opportunity to write letters to all of these groups that supported this law and are now surprised. We can try to help them understand the problems with patents and copyright in many scenarios.

Ask the group leaders to ask their supporters to write to their representatives.

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The Orphan Drug Act is totally unrelated to copyright and patent law. If by some stretch one is able to draw an analogy with patent law, it would be useful to bear in mind that patents can be challenged on many fronts. The Orphan Drug Act provides very few such opportunities.

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It's a law that allows monopolizing over a particular production. The results, no matter the name, can be stifling in many ways but almost surely will mean potentially much higher prices.

As for ways to question patents, if the law is horrible (eg, an extremely low inventiveness standard essentially guaranteeing lots of stifling and abridging when applied to a consumer accessible process or method, as is the case with "software patents" in general), then questioning becomes a formality that can accomplish little of substance.

Drug companies..

are all about PROFIT; people's health has very little to do with it. Does anyone really think the big pharma companies care about how many people die because they can't afford $1,500 per dose of a pill?

They get away with it cause they slip fat envelopes to the right people in the government.